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Valero Energy signs up as anchor shipper for US Midwest CO2 sequestration project
In one of the largest US carbon capture projects to date, Valero Energy and BlackRock Global Energy & Power Infrastructure Fund III announced 16 March they will develop a 1,200-mile network of pipelines spanning five Midwest states to collect liquid carbon dioxide (CO2) from biorefineries and other industrial facilities for transport to a geological sequestration site expected to be in south-central Illinois.
The pipeline will be built by Navigator Energy Services, a Dallas-based company that operates a 250-mile crude oil pipeline system it is expanding in Oklahoma with backing from BlackRock Infrastructure Funds. The proposed pipeline system would serve plants in Nebraska, Iowa, South Dakota, Minnesota, and Illinois -- all leading biofuel producers -- and would initially have the capacity to permanently store up to 5 million metric tons (mt) of CO2 per year, but expandable to 8 million mt/year.
Valero, which has the largest ethanol production capacity in North America, said it will serve as anchor shipper for the pipeline, with several of its biofuel plants across Midwest using most of the initial capacity of the system.
The company has some familiarity with carbon capture. Its Port Arthur, Texas, oil refinery became "the first industrial site in the US to host a large-scale carbon capture project," according to the company, and it continues to capture more than 1 million mt per year. The company's Jefferson ethanol plant in Wisconsin sends 65,000 mt of CO2 a year from its fermentation process to a business that uses it in carbonated beverages.
By targeting biofuel refineries, the pipeline project is focusing on an industrial sector that analysts say is among those with the best prospects for affordable carbon capture because those facilities have a rich stream of CO2 in their emissions. As a result, they can more easily offset the high costs of the technology by harvesting a relatively large amount of CO2 compared with coal-fired power plants and other carbon-heavy facilities. That boosts returns for biorefineries from federal tax credits awarded on a per ton of carbon captured basis, Valero said.
The project also is well-timed for Valero, which operates 15 oil refineries, mostly in Louisiana and Texas, in addition to the biofuel plants. On 3 March, after pressure from an investor resolution by Mercy Investment Services investors, Valero said it will disclose its climate lobbying activities in a report by the end of 2021. Also, it has approved investments that it says will reduce its Scope 1 and Scope 2 GHG emissions by 63% by 2025, from a 2011 baseline.
"This project demonstrates our leadership in energy transition," Joe Gorder, Valero chairman and CEO, said in a statement. "We continue to expand our long-term competitive advantage with investments to produce lower carbon fuels."
For BlackRock, the project promises to buff the green credentials of the world's largest investment firm, with more than $8.7 trillion of assets under management. BlackRock has been increasingly vocal about using its financial clout to support clean energy projects. On 17 February, BlackRock issued a five-page statement on its new expectations for climate and energy risk disclosure from corporations, including any Scope 1 and 2 emissions stemming from their operations and energy use and what reduction targets they set for such pollution (see IHS Markit coverage here).
At CERAWeek by IHS Markit earlier this month, carbon capture was often referenced by oil industry members and investors as a key component of the transition to net-zero carbon emissions globally. Occidental Petroleum, with decades of experience using carbon injection for enhanced oil recovery, now sees carbon management as a business line, said CEO Vicki Hollub. "We do not expect to be an oil company only in the next 10 to 20 years. We expect to become a carbon management company," she said.
Panelists at CERAWeek said private investments, such as the BlackRock-Valero venture, would likely be expanded if government subsidies, tax credits, or some other form of partnership is engaged. Norway's Longship carbon capture project is possibly a model, said Adam Sieminski, president of the King Abdullah Petroleum Studies and Research Center. "We may find [in the US] … concerns if there is overall a political will to assign a certain degree of a social cost to do so, and that in turn, if that price is a bit higher than kind of where we are today, it may end up driving additional incentives, and really the proliferation of CCS," he said.
"I think it's important to understand the need for research and development, but we're entering a period where technologies are becoming important to deploy commercially, and thinking about not millions of dollars, but billions of dollars over the next 10 years in terms of deployment is very important," said Occidental President, Operations, US Onshore Resources and Carbon Management Richard Jackson.
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